Charitable Remainder Trusts

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A charitable remainder trust (“CRT”) is an irrevocable trust established by a donor during his or her lifetime (or at death via will) which provides income to a taxable person (or persons) for the term of the trust. Upon the expiration of the trust term (death or a term of years), the remainder of the trust goes to one or more charities.

Prior to the Tax Reform Act of 1969 (“1969 TRA”), CRT’s paid income (only) to individual beneficiaries and the corpus was distributed to charity at termination. These trusts are grandfathered by the 1969 TRA and many charities have received (or are expecting) distributions from such trusts.

Post 1969 TRA, the Internal Revenue Code permits only two different types of charitable remainder trusts: Charitable Remainder Annuity Trusts and Charitable Remainder Unitrusts. The terms of these trusts can be natural life or a term of years not to exceed 20 years.

A Charitable Remainder Annuity Trust must pay a minimum of 5% of the initial fair market value of the funding assets annually to the current beneficiary or beneficiaries. The maximum payout percentage is 50%. The trust assets are never revalued.

A Charitable Remainder Unitrust is a popular way to achieve tax benefits as well as a fixed annual percentage on the value of the assets in the trust. The assets are revalued annually and, if the trust value changes, the payment to the beneficiary(ies) changes.

Charitable Remainder Trusts provide a good degree of flexibility that is valuable in charitable gift planning. For example, a variation on remainder trusts can be an effective way to make gifts of real estate.

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